FINANCIAL ACCOUNTING AND REPORTING

Theory
Basic Accounting Concepts
1. Which of the following terms best describes financial statements whose basis of accounting recognizes
transactions and other events when they occur?
a) Accrual basis of accounting
b) Cash basis of accounting
c) Going concern basis of accounting
d) Invoice basis of accounting

2. Which of the following basic accounting assumptions is threatened by the existence of severe inflation in the
economy?
a) Economic entity assumption
b) Going concern assumption
c) Monetary unit assumption
d) Periodicity assumption

3. During the lifetime of an entity, accountants produce financial statements at arbitrary points in time in accordance
with which basic accounting concept?
a) Cost and benefit constraint
b) Expense recognition principle
c) Materiality constraint
d) Periodicity assumption

Accounting Process
4. Factors that shape an accounting in
a) The group of assets needed by the entity to operate profitably.
b) Capital which has been reinvested in business.
c) Unappropriated retained earnings.
d) Current assets less current liabilities.

5. Under IFRS, the dividend received from share investments can be classified as
a) Either an operating activity or a financing activity
b) Either an operating activity or investing activity
c) Only as an investing activity
d) Only an operating activity

6. Cash receipts from issuing shares are

a) Cash inflows from investing activities
b) Cash outflows for investing activities
c) Cash inflows from financing activities
d) Cash outflows for financing activities

7. An entity shall prepare a statement of cash flows and shall present it as

a) Supplementary financial statement
b) Note to financial statement
c) Supporting schedule for amount appearing as cash and cash equivalent
d) Integral part of the entity’s basic financial statements

8. Investing activities include

a) Cash payments to and on behalf of employees
b) Cash payments for future contract, forward contract, option contract and swap contract
c) Cash repayments of amounts borrowed
d) Cash payments by a lessee for the reduction of the outstanding liability relating to a finance lease.

9. A cash dividend that is declared during an accounting period, to be paid in the next accounting period, is presented
in the statement of cash flows for the current period as
a) A use of cash from operating activities
b) A noncash transaction presented in a separate schedule
c) A use of cash from investing activities
d) A use of cash from financing activities

10. Prospective application of the effect of change in estimate means that the change is applied to transactions from
the
a) Date of change
b) Balance sheet date
c) Beginning of the year of change
d) Date of issuance of financial statement

11. A change in accounting policy shall be effected when:

I. It is required by an accounting standard or its interpretation
II. It helps an entity save on corporate taxes by way of understanding periodic income
III. The change results in financial statements providing more relevant or reliable financial information about
the reporting entity
a) I and II
b) II and III
c) I and III
d) I, II and III
12. Retrospective application means that any effect of a change in accounting policy should be reported as
a) An extraordinary item
b) A current adjustment to profit or loss
c) A component of discontinued operation
d) A catch-up adjustment to the opening balance of retained earnings.

13. Prior period errors include all of the following, except

a) Effects of mathematical mistakes
b) Mistakes in applying accounting policies
c) Oversights or misinterpretation of facts and fraud
d) Effects of a change in the estimated useful life of an asset

14. Prior period errors discovered in the current period are reported as
a) Extraordinary items
b) Component of current income from ordinary activities
c) Adjustments to the opening balance of retained earnings
d) Component of current income from continuing operations

15. In 2018, a firm changed from straight line (SL) method of depreciation to double declining balance (DDB). The
firm’s 2017 and 2018 comparative financial statements will reflect which method or methods?
a) 2017: SL, 2018: SL
b) 2017: SL, 2018: DDB
c) 2017: DDB, 2018: DDB
d) 2017: SL, either SL or DDB

16. Which of the following statements regarding reversing entries is incorrect?

a) All accruals should be reversed
b) Adjusting entries for depreciation and bad debts are never reversed.
c) Deferrals entered in statement of financial position accounts make reversing entries unnecessary.
d) Reversing entries change amount reported in the statement of financial position for the previous period

Standard setting
17. The purpose of the International Accounting Standards Board is to
a) Issue enforceable accounting standards.
b) Develop a single set of high-quality IFRS
c) Develop a uniform currency for measurement.
d) Arbitrate accounting disputes between auditors and international entities.

18. Financial accounting standard-setting

a) Is a based solely on research and empirical findings
b) Is legalistic process based on rules promulgated by governmental agencies
c) Is a democratic in the sense that majority of accountants must agree with a standard before it becomes
enforceable.
d) Can described as a social process which reflects political actions of various interested user group as well as
product of research and logic.
19. The IASB employs as “due process” system which
a) As an efficient system for collecting dues from members.
b) Identifies the accounting issues that ae the most important.
c) Enables interested parties to express their views on issues under consideration.
d) Requires that all accountants must receive a copy of financial accounting standards.

20. What is a possible danger if the politics plays too big a role in developing IFRS?
a) User groups become active.
b) Individuals may influence the standards
c) The IASB delegates its authority to elected officials.
d) Financial reporting standards are not truly generally accepted.

21. The IASB declared that the merit of proposed standards are assessed.
a) from a position of neutrality
b) from a position of materiality
c) based on arguments of lobbyist
d) based on possible impact on behavior

22. What is the chronological order in the evaluation of typical standard?

a) Discussion paper, Exposure draft and Standard
b) Exposure draft, Discussion paper and Standard
c) Exposure draft, Standard and Discussion paper
d) Standard, Discussion paper, and Exposure draft

23. IFRIC Interpretations

a) are considered authoritative and must be followed
b) cover newly identified financial reporting issues not specifically addressed.
c) cover issues where unsatisfactory or conflicting interpretations have developed.
d) All of these are correct regarding IFRIC Interpretations
Conceptual Framework
24. The underlying theme of the Conceptual Framework is
a) Comparability
b) decision usefulness
c) timeliness
d) understandability

25. Which of the following is not a benefit associated with the Conceptual Framework?
a) A coherent set of accounting standards and rules should result.
b) Practical problems should be more quickly solvable by reference to an existing conceptual framework.
c) A conceptual framework should increase financial statement users’ understanding and confidence in financial
reporting.
d) Business entities will need far less assistance from accountants because financial the financial reporting
process will be quite easy to apply

26. What is the authoritative status of Conceptual Framework?

a) The Conceptual Framework has the highest level of authority
b) The Conceptual Framework applies only when new or revised standards are developed.
c) In the absence of a Standard or an Interpretation that specifically applies to a transaction, the Conceptual
Framework should be followed.
d) In the absence of a Standard or an Interpretation that specifically applies to a transaction, management
should consider the applicability of the Conceptual Framework in developing and applying an accounting
policy that results in information that is relevant and reliable.

27. What is the objective of financial statements?

a) To prepare comparable, relevant, reliable and understandable information to investors and creditors.
b) To prepare financial statements in accordance with all applicable Standards and Interpretations.
c) To prepare a statement of financial position, an income statement, a statement of cash flows and a statement
of changes in equity.
d) To provide information about the financial position, performance and changes in financial position,
performance and changes in financial position of an entity that is useful to a wide range of users in making
economic decisions.

28. What is the objective of financial reporting?

a) To provide information that is useful to management.
b) To provide information about those investing in entity.
c) To provide information that is useful in making investing and credit decisions.
d) All of these.

29. What is the major objective of financial reporting?

a) To provide information that exclude claims to the resources.
b) To provide information that clearly portrays nonfinancial transactions.
c) To provide information that is useful to management in making decisions.
d) To provide information that is useful to assess the amounts, timing, and uncertainty of prospective cash
receipts.

30. One element of the objective of financial reporting is to provide information.

a) That will attract new investor
b) about the investor in the entity
c) that is useful is assessing cash flows prospects
d) about the liquidation value of the resources held by the entity.

Let us have a discussion of this on April 17, 2020 at 3pm

For questions, you can reach me thru my FB messenger

Instructor:
Lorenz Nicole R. Casas